Wish to do more for middle class: Finance Minister

Finance Minister Nirmala Sitharaman on Monday said that she wishes to “do more” for the middle class, but highlighted that there are “limitations” in providing relief through tax tweaks. The statement comes ahead of the Union Budget 2025-26, which, given the slowdown in consumption demand, has raised expectations of significant tax concessions for the middle class, and support for the low-income population.

While speaking to a TV channel, Sitharaman said: “I respect the issue of giving relief to the middle class. I wish to do more, but there are limitations in taxation. To make a difference for salaried people, the standard deduction was increased from ₹50,000 to ₹75,000 (in the last Budget).”

This adjustment (standard deduction), combined with revised tax rates, aims to benefit not just middle-income earners but also higher-income groups, offering incremental relief across various tax brackets, the FM said.

Even as the economic growth has slowed, tax receipts are relatively strong for the government, with gross personal income tax collections growing at 20.2% on year in April-October period of the current financial year.

Analysts have raised concerns over a tepid consumption in the economy in the backdrop of a lower than expected GDP growth print of 5.4% in Q2 FY25. Even though rural consumption has shown feeble signs of recovery in the first half of the current fiscal year, urban consumption has slowed mainly due to low real wage growth. In H1, private final consumption expenditure (PFCE), however, has grown 6.7% as against 4% in FY24. The finance ministry in a recent report said that the Reserve Bank of India’s monetary policy stance and macro-prudential measures may have contributed to the demand slowdown in the economy.

It also said that “hiring and compensation practices” in the corporate sector have also played their part in slowing urban consumption growth, in the current fiscal.

The Budget for FY25, presented in July, had introduced a slew of changes to the income tax slabs under the new tax regime (NTR), besides increasing standard deduction for salaried employees and pensioners, to leave more disposable income in the hands of individuals. The changes were aimed at making the NTR more acceptable; over 70% of taxpayers have already opted for the same.

The Rs 25,000 increase in standard deduction offers significant benefits to the tax payers. For the salaried, this means that no tax will be payable on a salary of up to Rs 7,75,000.